Google ready to invade telco turf, bid on 700MHz spectrum

In answer to a question from a T-Mobile exec, Google chief Eric Schmidt …

For the last few weeks, Google has been pondering its response to the FCC's 700MHz auction rules. Would it bid on the spectrum or wouldn't it? Last night, CEO Eric Schmidt appeared to indicate that the company was leaning toward a bid, a decision that is no doubt giving the incumbent telcos night sweats.

Schmidt delivered a dinner keynote at the Progress & Freedom Foundation's annual Aspen Summit, and he talked about the topic that was on everyone's mind: would Google use its hoard of cash to bid for a juicy block of 700MHz spectrum being vacated by analog television broadcasters in 2009?

Those rules are now out, so anticipation was high among the gathered glitterati of the tech sector. Anticipation was also high among Google competitors like T-Mobile, a company long said to want more spectrum to boost its cellular data offerings. T-Mobile's head of government relations, Thomas Sugrue, stood up after dinner and asked Schmidt directly if Google would make a play for the spectrum.

In response to a question from a T-Mobile representative, he added: "probably is the answer to that."

The fact that each response is worded slightly differently is no big deal, and the gist of Schmidt's words is obvious. But the Reuters report makes it sound as though a bid would be Google's answer to the question; in other words, Schmidt isn't going to say, and other companies will just have to wait until the auction to find out if Google bids or not. The other quotes (and the tone of the rest of the Reuters piece) suggest that Schmidt's answer to the question about whether Google would bid was "Probably." That is, Schmidt said, "Yes, it's likely we will make a play for the spectrum." These are two quite different responses.

What's at stake

In any event, Google hasn't ruled out what could become an expensive bidding war for a prime piece of spectrum and seems to be in favor of throwing its hat into the ring. What Google would do with the spectrum is not entirely clear, though we assume that it would voluntarily stick to the four open access conditions proposed earlier.

In addition to coughing up more than $4.6 billion just for the rights to the spectrum (the reserve price set by the FCC), Google would then need to build out a national network infrastructure in the next few years at a cost that could make the license look like a bargain. Assuming that Google were to do so and were to stick to its four open access principles, the company (or consortium, if it partners with others) would be running a network that only sells wholesale services to others.

This certainly has the potential to create great innovation, since anyone can purchase access to a high-quality wireless network and offer services across it without owning massive infrastructure. What's Google's game here?

Because the 700MHz has such desirable spectrum propagation characteristics, it's also much cheaper and easier to roll out a network with excellent coverage than it is to do so with higher-frequency technology. Making broadband access cheap and affordable means more people come online, and more people are able to make use of Internet services—exactly the sort of thing Google offers.

But just as importantly, it helps Google avoid any problems from non-neutral ISPs. After former SBC chief Ed Whitacre announced that Google shouldn't be able to "use my pipes free," Google saw a potential threat to its existence from the network operators that lay between it and consumers. Running a national wireless network could create enough competition that incumbent telcos simply couldn't implement their previous plans to charge companies like Google and Yahoo for better access to end users.

In effect, this could give Google control of the entire pipe between customers and Google servers, a move that could be very good for business strategy, even if the wireless network is not a major profit center. Companies never like to be at the mercy of other companies, and Google is no exception.

Whitacre's remarks are sometimes credited with igniting the public debate over network neutrality. Ironically for the telcos who can't be thrilled at the possibility of a bidding war with a cash factory like Google, one of their own may be to thank for the current situation.